Finance
Share of U.S. companies in China looking to relocate hits a record high, survey finds
Chinese and U.S. flags flutter near The Bund, before U.S. trade delegation meet their Chinese counterparts for talks in Shanghai, China July 30, 2019.
Aly Song | Reuters
BEIJING — A record share of U.S. companies in China are accelerating their plans to relocate manufacturing or sourcing, according to a business survey released Thursday.
About 30% of the respondents considered or started such diversification in 2024, surpassing the prior high of 24% in 2022, according to annual surveys from the American Chamber of Commerce in China.
That also exceeded the 23% share reported for 2017, when U.S. President Donald Trump began his first term and started raising tariffs on Chinese goods.
In addition to U.S.-China tensions, “one of the major impacts that we’ve seen in the last five years was Covid and how China closed itself off from the world because of Covid,” Michael Hart, Beijing-based president of AmCham China, told reporters Thursday.
“That’s been one of the largest triggers as people realized they needed to diversify their supply chains,” he said. “I don’t see that trend slowing down.”
China restricted international travel and locked down parts of the country during the Covid-19 pandemic in an attempt to restrict the spread of the disease.
While India and Southeast Asian countries remained the most popular destination for relocating production, the survey showed 18% of the respondents considered relocating to the U.S. in 2024, up from 16% the prior year.
The majority of U.S. companies did not plan to diversify. Just over two-thirds, or 67%, of respondents said they were not considering relocating manufacturing, a 10 percentage point drop from 2023, the survey showed.
The latest AmCham China survey covered 368 members from Oct. 21 to Nov. 15. Trump was re-elected U.S. president on Nov. 5.
Trump this week affirmed plans to raise tariffs on Chinese goods by 10%, and said the duties could come as soon as Feb. 1. That follows an increasingly tough U.S. stance on China. The Biden administration had emphasized the U.S. is in competition with China and issued sweeping restrictions on the ability of Chinese companies to access high-end U.S. tech.
More than 60% of the respondents said U.S.-China tensions were the biggest challenge for doing business in China in the year ahead. Competition from local state-owned companies or privately owned Chinese companies was the second-biggest challenge for U.S. businesses operating in China, according to the survey.
Slower economic growth
Adding to geopolitical pressures, growth in the world’s second-largest economy has slowed, with muted consumer spending since the pandemic. Chinese authorities in late September started ramping up efforts to stimulate growth and halt the real estate slump.
For a third-straight year, more than half of AmCham China respondents said they did not make a profit in the country, adding that the region had become less competitive in terms of margins versus other global markets.
The proportion of companies no longer listing China as a preferred investment destination climbed to 21%, doubling from pre-pandemic levels, the survey said.
Looking ahead, however, tech, industrial and consumer businesses said they viewed growth in domestic consumption as the top business opportunity for 2025, the survey said. Services firms said their top opportunity was Chinese companies looking to expand overseas.
Hart noted that many members are still optimistic on Chinese consumers as a “sizeable, important market.”
It appears T. Rowe Price is benefitting from the record growth in actively managed exchange traded funds.
Tim Coyne, the firm’s head of ETFs, reports the firm is seeing significant growth in the area — listing the T. Rowe Price Capital Appreciation Equity ETF (TCAF) and T. Rowe Price U.S. Equity Research ETF (TSPA) as two established strategies that can satisfy investor demand.
“I think having that professionally managed portfolio is really beneficial to clients,” Coyne told CNBC’s “ETF Edge” this week. “We’re seeing just… greater volatility [and] uncertainty across both the equity and fixed income markets.“
According to Coyne, the T. Rowe Price Capital Appreciation Equity ETF suits investors who are looking for long-term growth.
“The objective of the fund is to outperform the S&P 500 with lower volatility and greater tax efficiency,” he said. “It’s also a more concentrated portfolio, typically holding around a hundred names.”
As of April 24, the fund’s top holdings include Microsoft, Amazon, and Apple according to the T. Rowe Price website. But it’s not all Big Tech. The ETF also features smaller positions in companies like Becton Dickinson and Roper Technologies.
The T. Rowe Price Capital Appreciation Equity ETF is down about 5% so far this year while the S&P 500 is off about 7% However, the ETF is up close to 8% over the past year — roughly identical to the S&P 500’s performance.
Coyne notes the T. Rowe Price U.S. Equity Research ETF follows a similar strategy, but with a heavier weighting in top tech stocks.
“This is more of a large-cap growth product [T Rowe Price U.S. Equity Research ETF],” he said. “There are components of characteristics of both passive and active here. This fund is actually managed by our North American directors of research. So again, strong fundamental research is going into the stock selection.”
Both the T. Rowe Price U.S. Equity Research ETF and S&P 500 are down around 7% since the beginning of the year. Meanwhile, the fund is up almost 9% over the past year. That’s less than one percent better than the S&P 500’s performance.
T. Rowe Price U.S. Equity Research ETF vs. S&P 500
‘Some form of bear market’
Strategas Securities’ Todd Sohn thinks investment demand for active managers will continue to be strong.
“This is the type of the environment where it [active management] can actually shine,” the firm’s senior ETF and technical strategist said. “We are in some form of bear market. This is where the active manager really can come into hand and offer their solution they are doing right.”
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